[Federal Register Volume 84, Number 38 (Tuesday, February 26, 2019)]
[Notices]
[Pages 6163-6174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03339]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2019-01; Exemption Application No. D-
11988]


Exemption Involving UBS Assets Management (Americas) Inc.; UBS 
Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; 
and Certain Future Affiliates in UBS's Asset Management and Global 
Wealth Management U.S. Divisions (Collectively, the Applicants or the 
UBS QPAMs) Located in Chicago, Illinois; Hartford, Connecticut; New 
York, New York; and Chicago, Illinois, Respectively

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of exemption.

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SUMMARY: This document contains a notice of exemption issued by the 
Department of Labor (the Department) from certain of the prohibited 
transaction restrictions of the Employee Retirement Income Security Act 
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 
(the Code). The exemption affects the ability of certain entities with 
specified relationships to UBS, UBS Securities Japan, and UBS France to 
continue to rely upon relief provided by Prohibited Transaction 
Exemption 84-14.

DATES: This exemption will be in effect for one year from the date of 
the judgment in the French First Instance Court against UBS and/or UBS 
France in case number 1105592033.

FOR FURTHER INFORMATION CONTACT:  Mr. Brian Mica of the Department at 
(202) 693-8402. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On February 13, 2019, the Department 
published a notice of proposed exemption in the Federal Register at 84 
FR 3818, for certain entities with specified relationships to UBS to 
continue to rely upon the relief provided by PTE 84-14 for a period of 
one year,\1\ notwithstanding certain criminal convictions, as described 
herein (the Convictions) and the 2019 French Judgment Against UBS/UBS 
France.
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    \1\ 49 FR 9494, March 13, 1984, as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005) and 
as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as 
PTE 84-14 or the QPAM exemption.
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    The Department is granting this exemption to ensure that Covered 
Plans \2\ with assets managed by an asset manager within the corporate 
family of UBS may continue to benefit from the relief provided by PTE 
84-14. This exemption will be in effect for one year from the date of 
the judgment in the French First Instance Court against UBS and/or UBS 
France. No inference should be drawn from the Department's granting of 
this one-year exemption that the Department will grant additional 
relief for UBS QPAMs to continue to rely on the relief in PTE 84-14 
following the end of the one-year period.
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    \2\ ``Covered Plan'' is a plan subject to Part 4 of Title 1 of 
ERISA (``ERISA-covered plan'') or a plan subject to section 4975 of 
the Code (``IRA'') with respect to which a UBS QPAM relies on PTE 
84-14, or with respect to which a UBS QPAM (or any UBS affiliate) 
has expressly represented that the manager qualifies as a QPAM or 
relies on the QPAM class exemption (PTE 84-14). A Covered Plan does 
not include an ERISA-covered plan or IRA to the extent the UBS QPAM 
has expressly disclaimed reliance on QPAM status or PTE 84-14 in 
entering into its contract, arrangement, or agreement with the 
ERISA-covered plan or IRA.
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    No relief from a violation of any other law is provided by this 
exemption, including any criminal convictions or

[[Page 6164]]

criminal conduct described in the proposed exemption. Furthermore, the 
Department cautions that the relief in this exemption will terminate 
immediately if, among other things, an entity within the UBS corporate 
structure is convicted of a crime described in Section I(g) of PTE 84-
14 (other than the Convictions or the 2019 French Judgment Against UBS/
UBS France) during the Exemption Period. The terms of this exemption 
are designed to promote adherence to basic fiduciary standards under 
ERISA and the Code. This exemption also aims to ensure that Covered 
Plans can terminate relationships in an orderly and cost effective 
fashion in the event the fiduciary of a Covered Plan determines it is 
prudent to terminate the relationship with a UBS QPAM. The Department 
notes that its determination that the requisite findings under ERISA 
section 408(a) have been met is premised on adherence to all of the 
conditions of the exemption. Accordingly, affected parties should be 
aware that the conditions incorporated in this exemption are, taken as 
a whole, necessary for the Department to grant the relief requested by 
the Applicant. Absent these or similar conditions, the Department would 
not have granted this exemption.
    The Applicants requested an individual exemption pursuant to 
section 408(a) of ERISA and section 4975(c)(2) of the Code, and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011). Effective December 31, 1978, 
section 102 of the Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue administrative exemptions under section 4975(c)(2) of the Code to 
the Secretary of Labor. Accordingly, this exemption is being granted 
solely by the Department.

Department's Comment

    The Department cautions that the relief in this exemption will 
terminate immediately if an entity within the UBS corporate structure 
is convicted of a crime described in Section I(g) of PTE 84-14 (other 
than the Convictions and the 2019 French Judgment Against UBS/UBS 
France) during the Exemption Period. Although the UBS QPAMs could apply 
for a new exemption in that circumstance, the Department would not be 
obligated to grant the exemption. The terms of this exemption have been 
specifically designed to permit plans to terminate their relationships 
in an orderly and cost effective fashion in the event of an additional 
conviction, or the expiration of this exemption without additional 
relief, or a determination that it is otherwise prudent for a plan to 
terminate its relationship with an entity covered by the exemption.

Written Comments

    The Department invited all interested persons to submit written 
comments and/or requests for a public hearing with respect to the 
notice of proposed exemption, published in the Federal Register at 84 
FR 3818 on February 13, 2019. All comments and requests for a hearing 
were due by February 19, 2019. The Department received written comments 
from the Applicant, the National Federation of Independent Business 
(NFIB), the Securities Industry and Financial Markets Association 
(SIFMA), and two members of the public. After considering the entire 
record developed in connection with the Applicant's exemption request, 
the Department has determined to grant the exemption, with revisions, 
as described below.

UBS QPAMs Comments

1. Effective Date and Notification Requirement

    A. The UBS QPAMs have also requested that the Department issue an 
Advisory Opinion stating that an adverse judgment in the French First 
Instance Court would not constitute a conviction within the meaning of 
Section I(g) of PTE 84-14. The UBS QPAMs argue that if the Department 
determines that the French First Instance Court judgment does not 
constitute a conviction under Section I(g) of PTE 84-14 either because 
convictions in a foreign jurisdiction generally are not covered by 
Section I(g), or because the French First Instance Court's judgment, in 
particular, would not constitute a conviction under Section I(g), then 
the one year exemption will have been unnecessary as there would be no 
conviction for which an exemption is required. In that case, the UBS 
QPAMs state that the conditions of PTE 2017-07 should continue to be 
effective. The UBS QPAMs request that the Department revise the 
exemption to make clear that the exemption will expire automatically to 
the extent the Department issues an Advisory Opinion stating that the 
Potential 2019 French Judgment Against UBS/UBS France does not 
constitute a conviction for purposes of Section I(g) of PTE 84-14.
    B. Additionally, the UBS QPAMs request that section I(k) of the 
exemption be revised so that the UBS QPAMs are not required to send 
notice within 60 days of the Potential 2019 French Judgment Against 
UBS/UBS France if the Department has not issued an Advisory Opinion 
within 60 days of the French First Instance Court's judgment.\3\ The 
UBS QPAMs argue that the notice should be required by the later of 60 
days from the date of judgment in the French First Instance Court or 30 
days after an advisory opinion is issued by the Department that is 
adverse to the UBS QPAMs advisory opinion request. The UBS QPAMs argue 
this would avoid the necessity of requiring the UBS QPAMs to spend a 
significant amount of time and resources notifying plans of an 
exemption that would be inoperative and avoid disclosure of information 
that would ultimately be superseded by an advisory opinion and require 
correction. The UBS QPAMs also request similar revisions to the notice 
provision in Section I(j)(7).\4\
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    \3\ Proposed Section I(k) provides that: Within 60 days of the 
judgment against UBS or UBS France by the French First Instance 
Court, each UBS QPAM will provide a notice of the exemption, along 
with a separate summary describing the facts that led to the 
Convictions and the Potential 2019 French Judgment Against UBS/UBS 
France (the Summary), which have been submitted to the Department, 
and a prominently displayed statement (the Statement) (collectively, 
Initial Notice) that the Convictions and the Potential 2019 French 
Judgment Against UBS/UBS France, each separately result in a failure 
to meet a condition in PTE 84-14 and PTE 2017-07, to each sponsor 
and beneficial owner of a Covered Plan, or the sponsor of an 
investment fund in any case where a UBS QPAM acts as a sub-advisor 
to the investment fund in which such ERISA-covered plan and IRA 
invests. Effective as of the date that is 60 days after the 
Potential 2019 French Judgment Against UBS/UBS France Date, all 
Covered Plan clients that enter into a written asset or investment 
management agreement with a UBS QPAM after that date must receive a 
copy of the exemption, the Summary, and the Statement prior to, or 
contemporaneously with, the Covered Plan's receipt of a written 
asset management agreement from the UBS QPAM. Disclosures may be 
delivered electronically.
    \4\ Section I(j)(7) requires: Within six months of the date of 
the judgment against UBS or UBS France by the French First Instance 
Court, each UBS QPAM must provide a notice of its obligations under 
this Section I(j) to each Covered Plan. For prospective Covered 
Plans that enter into a written asset or investment management 
agreement with a UBS QPAM on or after the date of such a judgment, 
the UBS QPAM will agree to its obligations under this Section I(j) 
in an updated investment management agreement between the UBS QPAM 
and such clients or other written contractual agreement. This 
condition will be deemed met for each Covered Plan that received a 
notice pursuant to PTE 2016-17 and/or PTE 2017-07 that meets the 
terms of this condition. Notwithstanding the above, a UBS QPAM will 
not violate the condition solely because a Plan or IRA refuses to 
sign an updated investment management agreement.
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    Department's Response to Comment A. The Department declines to 
revise the proposed exemption as requested by the UBS QPAMs. The 
Department has construed Section I(g) as extending to

[[Page 6165]]

foreign convictions \5\ and granted new exemptions to convicted 
entities on the basis that foreign convictions were disqualifying under 
I(g).\6\ In addition, although UBS asserts that the judgment of the 
French First Instance Court should not count as a conviction for 
purposes of Section I(g) until such time as all appeals have been 
exhausted, Section I(g) expressly provides that ``a person shall be 
deemed to have been `convicted' from the date of the judgment of the 
trial court, regardless of whether that judgment remains under 
appeal.''
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    \5\ The purpose and intent of Section I(g) is explained in the 
Preamble to Proposed Prohibited Transaction Exemption 84-14, 47 FR 
56945, 56947 (Dec. 21, 1982). That explanation provides: ``A QPAM, 
and those who may be in a position to influence its policies, are 
expected to maintain a high standard of integrity. Accordingly, the 
proposed exemption does not cover transactions if the QPAM or 
various affiliates have been convicted of various crimes (outlined 
in section I(g) of the proposal), that involve abuse or misuses of a 
position of trust, or felonies generally described in ERISA section 
411.'' The Department notes that, in relevant part, neither the 
language nor the intent of the provision in Section I(g) changed 
between the proposed exemption and the final Prohibited Transaction 
Exemption 84-14.
    \6\ See, for example, the following exemptions issued by the 
Department, involving foreign convictions: Citigroup Inc., PTE 2012-
08, 77 FR 19344 (March 30, 2012); Royal Bank of Canada, PTE 2016-10, 
81 FR 75147 (October 28, 2016); Northern Trust Corporation, PTE 
2016-11, 81 FR 75150 (October 28, 2016); Deutsche Bank, PTE 2015-15 
80 FR 53574, (September 4, 2015).
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    The Department notes, however, that if UBS/UBS France is ultimately 
exonerated on appeal, or if the Department were to reverse its view on 
the significance of the judgment of the French First Instance Court or 
on whether Section I(g) covers foreign convictions--the subject of the 
UBS QPAMs' advisory opinion request--the UBS QPAMs could continue to 
rely upon PTE 2017-07, irrespective of this separate exemption, 
assuming they meet the other conditions of PTE 2017-07, and there are 
no subsequent convictions. No change in exemption text is necessary for 
the UBS QPAMs in that circumstance.
    Department's Response to Comment B. The Department declines to make 
the requested revision. Before granting an exemption under Section 
408(a) of ERISA, the Department must conclude that its conditions are 
protective of affected plans and IRAs. The Department does not believe 
the exemption is sufficiently protective if UBS is permitted to delay 
required notification until after the Department resolved the pending 
advisory opinion request. In order to make informed decisions, Plans 
and IRAs with assets managed by UBS QPAMs should be aware and informed, 
at the soonest possible date, of the circumstances that caused UBS to 
submit its request for this exemption, along with the terms of this 
exemption.\7\ Moreover, the sudden loss of an asset manager's status as 
a QPAM could, in some circumstances, be disruptive, harmful, and/or 
expensive for plans and IRAs with assets managed by the QPAM. Notice of 
the conviction, the new exemption, its terms, and duration, enable 
plans and IRAs to protect their interests and to plan for future 
contingencies.
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    \7\ PTE 2015-15, for example, required each Deutsche Bank QPAM 
to provide a notice of the exemption, along with a separate summary 
describing the facts that led to the Convictions (the Summary), 
which were submitted to the Department, and a prominently displayed 
statement (the Statement) that each Conviction separately resulted 
in a failure to meet a condition in PTE 84-14, to each sponsor and 
beneficial owner of a Covered Plan that entered into a written asset 
or investment management agreement with a DB QPAM on or before June 
16, 2018, or the sponsor of an investment fund in any case where a 
DB QPAM acts as a subadvisor to the investment fund in which such 
ERISA-covered plan and IRA invests. In that exemption, the ``term 
`Convictions' means (1) the judgment of conviction against DB Group 
Services that was entered on April 18, 2017, in case number 3:15-cr-
00062-RNC in the United States District Court for the District of 
Connecticut to a single count of wire fraud, in violation of 18 
U.S.C. 1343 and (2) the judgment of conviction against DSK entered 
on January 25, 2016, in Seoul Central District Court, relating to 
charges filed against DSK under Articles 176, 443, and 448 of South 
Korea's Financial Investment Services and Capital Markets Act for 
spot/futures-linked market price manipulation. For all purposes 
under this exemption, `conduct' of any person or entity that is the 
`subject of [a] Conviction' encompasses the factual allegations 
described in Paragraph 13 of the Plea Agreement filed in the 
District Court in case number 3:15-cr-00062-RNC, and in the 
`Criminal Acts' section pertaining to `Defendant DSK' in the 
Decision of the Seoul Central District Court.''
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    Notwithstanding the foregoing, however, the Department recognizes 
that the UBS QPAMs do not agree that the French First Instance Judgment 
resulted in violation of Section I(g). Accordingly, the Department has 
modified Section I(k) so that the UBS QPAMs do not have to expressly 
acknowledge that the 2019 French Judgment Against UBS/UBS France 
resulted in a failure to meet a condition in PTE 84-14 and PTE 2017-07, 
but rather may simply recite that the Department of Labor has reached 
that conclusion

2. The Condition Making Future Foreign Convictions Disqualifying Should 
Be Omitted

    Section I(l) of the Proposed Exemption provides that the exemption 
will ``immediately terminate'' in the event that ``an entity within the 
UBS corporate structure'' is ``convicted of a crime described in 
Section I(g) of PTE 84-14 . . . , or convicted in a foreign 
jurisdiction for a crime described in Section I(g) of PTE 84-14.'' 
(Emphases added.)
    The Applicant requests the removal of the reference to foreign 
convictions in Section I(l). In support of its request the Applicant 
states the following:
    (A) The Department has not included foreign convictions in any 
prior exemption, and should not do so for the first time in a short-
term, temporary exemption at a time when an advisory opinion request 
has been made on the question of whether foreign convictions should be 
disqualifying under PTE 84-14;
    (B) the inclusion of foreign convictions within Section I(l) is 
problematic and not administratively feasible, as it would require the 
Department to interpret and apply foreign law with which it is not 
familiar and has no expertise;
    (C) the Department is exceeding its authority by imposing a per se 
disqualification that is more sweeping than the disqualification 
Congress enacted in Section 411 of ERISA; and
    (D) there are superior alternatives available to the Department 
that are better suited to address concerns that may arise from a 
foreign conviction, including a case-by-case approach whereby the 
Department could assess whether to modify or revoke the exemption.
    Department's Response to A. As noted above, it is the Department's 
view that Section I(g) of PTE 84-14 is not limited to crimes committed 
in the United States, and extends to crimes committed in foreign 
jurisdictions.\8\ The quoted text in Section I(l) was merely intended 
to remove any doubt as to the effect of any future foreign conviction, 
not to cast doubt upon the Department's past application of Section 
I(g) to such convictions. After consideration of the comment, the 
Department has revised the condition to make it clear that the 
exemption will ``immediately terminate'' if ``an entity within the UBS 
corporate structure'' is ``convicted of a crime described in Section 
I(g) of PTE 84-14 . . . , including a conviction in a foreign 
jurisdiction.''
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    \8\ See, for example, the following exemptions issued by the 
Department, involving foreign convictions: Citigroup Inc., PTE 2012-
08, 77 FR 19344 (March 30, 2012); Royal Bank of Canada, PTE 2016-10, 
81 FR 75147 (October 28, 2016); Northern Trust Corporation, PTE 
2016-11, 81 FR 75150 (October 28, 2016); Deutsche Bank, PTE 2015-15 
80 FR 53574, (September 4, 2015).
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    The Department stresses that a key purpose of Section I(g) is to 
ensure that a ``QPAM, and those who may be in a position to influence 
its policies, are expected to maintain a high standard of

[[Page 6166]]

integrity.'' \9\ Particularly in light of the 2019 French Judgment 
Against UBS/UBS France, the Department believes it is important to make 
clear when the UBS QPAMs would not be permitted to continue to rely on 
this exemption if any entity in the QPAM corporate structure is 
convicted of another serious foreign crime. In that circumstance, the 
Department would have significant cause for concern about the QPAMs' 
standards of integrity. Accordingly, they would be expected to submit a 
new application for an exemption based on full disclosure of the 
relevant facts and the Department's full evaluation of the significance 
of those facts.
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    \9\ Preamble to Proposed Prohibited Transaction Exemption 84-14, 
47 FR 56945, 56947 (Dec. 21, 1982).
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    Department's Response to Comment B. The Department does not agree 
that a condition that requires the UBS QPAMs to avoid covered foreign 
convictions results in an exemption that is not administratively 
feasible for the Department to implement. Although foreign laws and 
legal structures can be complex, the Department can draw upon a variety 
of resources (including submissions by the applicant) to determine if a 
conviction falls within Section I(g), as well as to determine the 
weight that the Department should give the conviction in deciding 
whether to grant a new exemption and how to structure the exemption.
    As noted above, the Department has previously granted exemptions 
following foreign convictions, without significant difficulty in 
administration. The question of whether a foreign conviction falls 
within such categories as a ``felony arising out of the conduct of the 
business of a broker, dealer, investment adviser, bank, insurance 
company, or fiduciary'' or ``income tax evasion'', within the meaning 
of the exemption, is not inherently more difficult or less 
administrable than many of the questions that the Department routinely 
considers in the exemption process (e.g., questions relating to complex 
and unfamiliar financial transactions).
    A service provider's conviction for a serious foreign crime is 
relevant to a fiduciary's analysis of whether to retain the service 
provider, and it is similarly relevant to the Department's 
determination of whether to grant the service provider relief from 
otherwise prohibited transactions.\10\ The express reference to foreign 
convictions is necessary to safeguard the interests of plan 
participants and IRA owners.
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    \10\ In this regard, when selecting or monitoring an asset 
manager, plan fiduciaries should not disregard foreign crimes 
committed by an entity within the asset manager's corporate 
structure, merely because the crimes may be complicated or difficult 
to interpret.
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    Department's response to Comment C. Section 411 of ERISA enumerates 
specific crimes that disqualify convicted persons from acting as 
service providers and fiduciaries to ERISA-covered plans. The exemption 
condition, in contrast, conditions a QPAM's ability to engage in 
otherwise prohibited transactions on the QPAM's avoidance of serious 
criminal misconduct, so that the Department can have an appropriate 
level of confidence that the institution maintains a standard of high 
integrity.
    In other words, Section 411 prohibits conduct that would otherwise 
be legal, while the exemption permits conduct that would otherwise be 
illegal. Section I(g) of the QPAM exemption has always covered crimes 
that are not expressly covered by Section 411 of ERISA; it serves a 
related, but different, purpose than Section 411.
    Section 408(a) of ERISA requires the Department to limit the 
availability of administrative exemptions to transactions and 
arrangements that are protective of, and in the interest of, affected 
plans and IRAs, and administratively feasible. As discussed above, the 
condition on foreign convictions is critical to the Department's 
determination that the exemption at issue here meets the statutory 
test.
    Department's Response to Comment D. The Department disagrees with 
the comment. Another serious foreign conviction would call into 
question the basis for permitting the UBS QPAMs to engage in prohibited 
transactions. If a trial court makes a determination of criminal 
misconduct, it would be appropriate to place the burden of seeking a 
new exemption on the UBS QPAMs. At that time, the Department would 
expect full disclosure of the wrongdoing that resulted in the 
conviction; the reasons (if any) that the Department should not be 
concerned about granting the QPAMs continued relief from ERISA's 
prohibited transaction provisions; and the basis for concluding that 
the UBS QPAMs will perform their fiduciary responsibilities with a high 
standard of integrity. The Department could then conduct a full 
analysis of whether and how to grant any further relief. This approach 
is both administrable and appropriately protective of the interests of 
plans, plan participants, and IRA owners.

Comment 3--Proposed Modifications to the Conditions in PTE 2017-07--
Section I(a), I(b) and I(h)(2)

    The UBS QPAMs state that the exemption should contain the same 
conditions as PTE 2017-07 and those conditions should not have been 
modified for purposes of this one-year exemption. In the UBS QPAMs' 
view, the Department should not impose additional conditions, without 
first resolving whether the adverse judgment in the French First 
Instance Court constitutes a conviction under Section I(g) of PTE 84-
14. Additionally, the UBS QPAMs state that the modifications to the 
conditions of PTE 2017-07 do not take into account the UBS QPAMs' 
record of compliance with the terms of their prior exemptions.
    Section I(a) of the proposed exemption provides in part that 
``[t]he UBS QPAMs (including their officers, directors, agents other 
than UBS, UBS Securities Japan, and UBS France), and employees of such 
UBS QPAMs and any other party engaged on behalf of such UBS QPAMs who 
had responsibility for, or exercised authority in connection with the 
management of plan assets did not know of, did not have reason to know 
of, or participate in: (1) The FX Misconduct; (2) the criminal conduct 
of UBS Securities Japan and UBS that is the subject of the Convictions; 
or (3) the criminal conduct of UBS and UBS France that is the subject 
of the Potential 2019 French Judgment Against UBS/UBS France.'' Section 
I(b) of the proposed exemption provides that ``[t]he UBS QPAMs 
(including their officers, directors, agents other than UBS, UBS 
Securities Japan, and UBS France, and employees of such UBS QPAMs and 
any other parties engaged on behalf of such UBS QPAMs) did not receive 
direct compensation, or knowingly receive indirect compensation, in 
connection with (1) the FX Misconduct; (2) the criminal conduct of UBS 
Securities Japan and UBS that is the subject of the Convictions; or (3) 
the criminal conduct of UBS and UBS France that is the subject of the 
Potential 2019 French Judgment Against UBS/UBS France.''
    The UBS QPAMs state that requiring these conditions to apply to 
third parties effectively conditions the exemption on facts regarding 
third parties that the UBS QPAMs are not in a position to know or 
confirm, and that the conditions, therefore, are not in the interest of 
participants and beneficiaries. The UBS QPAMs additionally claim that 
the Department previously had found that the conditions described in 
PTE 2017-07

[[Page 6167]]

were sufficient to isolate the investment and compliance operations of 
the QPAMs from the influence of bad actors. The UBS QPAMs also argue 
that modifications to existing conditions that are specific to the 
conduct underlying prior convictions runs afoul of the Department's 
regulations at 29 CFR 2570.50. According to the UBS QPAMs, this 
regulation requires the Department notify the applicant of its proposed 
actions and reasons prior to publication of a notice proposing a 
modification or revocation. If the Department declines to delete the 
third party language entirely, the UBS QPAMs request that the language 
apply only to the Potential 2019 French Judgment Against UBS/UBS 
France.
    Today the Department is granting a new exemption based on the 
application from the UBS QPAMs and is not modifying PTE 2017-07. The 
Department has determined to modify section I(a) and I(b) from the 
language of the proposed exemption to reflect that the language ``any 
other party engaged on behalf of such UBS QPAMs who had responsibility 
for, or exercised authority in connection with the management of plan 
assets'' will be applicable only for purposes of the criminal conduct 
of UBS and UBS France that is the subject of the 2019 French Judgment 
Against UBS/UBS France.
    Accordingly, Section I(a) is revised in part as follows: ``I(a) The 
UBS QPAMS (including their officers, directors, agents other than UBS, 
UBS Securities, Japan and UBS France, and the employees of such UBS 
QPAMs), did not have reason to know of, or participate in: (1) The FX 
Misconduct; (2) the criminal conduct of UBS Securities Japan and UBS 
that is the subject of the Convictions; or (3) the criminal conduct of 
UBS and UBS France that is the subject of the 2019 French Judgment 
Against UBS/UBS France. Further, any other party engaged on behalf of 
such UBS QPAMs who had responsibility for, or exercised authority in 
connection with the management of plan assets did not know of, did not 
have reason to know of, or participate in the criminal conduct of UBS 
and UBS France that is the subject of the 2019 French Judgment Against 
UBS/UBS France.'' Section I(b) is revised as follows: (b) The UBS QPAMs 
(including their officers, directors, agents other than UBS, UBS 
Securities Japan, and UBS France, and employees of such UBS QPAMs) did 
not receive direct compensation, or knowingly receive indirect 
compensation, in connection with the (1) the FX Misconduct; (2) the 
criminal conduct of UBS Securities Japan and UBS that is the subject of 
the Convictions; or (3) the criminal conduct of UBS and UBS France that 
is the subject of the 2019 French Judgment Against UBS/UBS France. 
Further, any other party engaged on behalf of such UBS QPAMs who had 
responsibility for, or exercised authority in connection with the 
management of plan assets did not receive direct compensation, or 
knowingly receive indirect compensation, in connection with the 
criminal conduct of UBS and UBS France that is the subject of the 2019 
French Judgment Against UBS/UBS France.''
    Section I(h)(2) of the proposed exemption provides that ``Any 
violation of, or failure to comply with an item in subparagraphs 
(h)(1)(ii) through (h)(1)(vi), is corrected as soon as reasonably 
possible upon discovery, or as soon after the QPAM reasonably should 
have known of the noncompliance (whichever is earlier), and any such 
violation or compliance failure not so corrected is reported, upon the 
discovery of such failure to so correct, in writing. Such report shall 
be made to the head of compliance and the General Counsel (or their 
functional equivalent) of the relevant UBS QPAM that engaged in the 
violation or failure, and, the independent auditor responsible for 
reviewing compliance with the Policies, and a fiduciary of any affected 
Covered Plan where such fiduciary is independent of UBS.''
    The UBS QPAMs request that the language regarding reporting 
uncorrected policy violations or compliance failures to ``a fiduciary 
of any affected Covered Plan'' should be omitted from the exemption. 
The UBS QPAMs state that the Department previously proposed this 
requirement in other exemptions but omitted the requirement from the 
final exemptions due to the concerns of the applicants. The UBS QPAMs 
claim it will be problematic to comply with this requirement because: 
It is uncertain when the uncorrected violations or failures must be 
reported to the plan fiduciaries; due to a lack of materiality 
threshold, this requirement may prompt frequent reports of technical or 
insignificant violations requiring the expenditure of time and 
resources without any benefit to plans; and the condition is unclear on 
how many fiduciaries of a plan must receive the report. Moreover, the 
UBS QPAMs argue that requirement is unnecessary given the requirement 
that the independent auditor will evaluate any uncorrected violations 
or compliance failures and the violations will be addressed in audit 
reports which are publically available.
    Given the requirement of the independent audit and the public 
availability of the audit report, the Department has determined not to 
include the additional requirement of separate notice to ``a fiduciary 
of any affected Covered Plan.'' The Department has modified section 
I(h)(2) accordingly.

Comment 4(a)--Definition of ``Conduct'' That Is the ``Subject Of'' an 
Adverse First Instance Judgment--Section II(b)

    Section II(b) of the proposed exemption provides in part ``[f]or 
all purposes under this exemption, ``conduct'' of any person or entity 
that is the ``subject of the alleged criminal conduct that may be the 
subject of the Potential 2019 French Judgment Against UBS/UBS France'' 
encompasses any conduct of UBS, its affiliates, or UBS France and/or 
their personnel that is described in any such judgment.'' The UBS QPAMs 
argue that unlike in prior exemptions that used a similar formulation 
of ``conduct'', UBS does not know at this time the specific conduct 
that will be described in any adverse judgment by the French First 
Instance Court. The UBS QPAMs claim that under French criminal 
procedure the description of the conduct would not be finalized until 
after the date of the adverse judgment, and possibly months later. The 
UBS QPAMS state they have no reason to believe they will unable to 
satisfy conditions in the exemption to which the definition in Section 
II(b) would apply, but that they believe those conditions should only 
be operative after the written description of the judgment has been 
issued and the UBS QPAMs have opportunity to review the description. 
Therefore, the UBS QPAMS request that Section II(b) be revised to 
provide that any conditions based on the conduct described in any 
adverse First Instance Judgment only become effective 60 days after the 
final written description for the judgment is issued.
    The Department is not making the requested revision to the 
definition in Section II(b). The Department believes that UBS has 
sufficient information of the conduct at issue to comply with the 
exemption condition. However, the Department has revised Section II(b) 
to provide more clarity. To make the required findings under section 
408(a) of ERISA, the Department concludes that the conditions relating 
to criminal conduct should be applied as of the effective date of the 
exemption.

Comment 4(b)--Structure of UBS Compliance Function--Section I(m)(1)(ii)

    The UBS QPAMs requested that Section I(m)(1)(ii) of the exemption 
be

[[Page 6168]]

modified to correctly reflect the current structure of UBS's compliance 
function. Accordingly, the Department has deleted the phrase ``the 
Global Head of C&ORC, who will report directly to UBS's Chief Risk 
Officer'' from Section I(m)(1)(ii).
National Federation of Independent Business
    The Department received a comment from the National Federation of 
Independent Business (NFIB) stating the Department should afford 
interested persons a longer time period to view files with respect to 
proposed exemptions, and to comment on the exemptions. The NFIB states 
that longer time periods are necessary to afford them the notice and 
opportunity to be heard to which the law entitles them, and would give 
the Department the time necessary to make better-informed decisions. 
NFIB also claims that the Department should take greater care to ensure 
compliance with the procedural requirements set by statute for the 
grant of exemptions in order to avoid the risk of successful legal 
challenges to its exemptions.
    In response to these assertions, the Department stresses that the 
comment period was appropriate under the circumstances of this 
particular proposed exemption. The period was necessarily limited 
because of the potential for an adverse judgment in the French First 
Instance Court on February 20, 2019, which could prevent the UBS QPAMs 
from continuing to rely upon the relief provided by PTE 84-14 and 
potentially cause harm to participants and beneficiaries. This 
exemption is for a temporary one-year period and if the UBS QPAMs apply 
for longer term exemptive relief, the Department will consider and 
afford a longer comment period for such relief, as appropriate.
SIFMA Comment
    The Department received a comment from the Securities Industry and 
Financial Markets Association (SIFMA) urging the Department to issue an 
advisory opinion that section I(g) does not encompass foreign crimes. 
SIFMA states that if the Department does not issue the requested 
advisory opinion to SIFMA that section I(g) does not encompass foreign 
crimes, and declines to issue an advisory opinion to UBS on the effect 
of the French judgment on section I(g), and instead moves forward with 
this proposed temporary exemption application, it should delete the 
condition in section 1(l) that adds foreign convictions to the type of 
convictions that would cause the exemption to be immediately 
unavailable.
    SIFMA argues that all the considerations described in Small v. 
United States \11\ in support of the Court's construction of a statute 
are also relevant in determining whether exemption conditions based on 
foreign convictions meet the administratively feasible requirement of 
ERISA section 408(a). According to SIFMA, in order to make a 
determination that any foreign conviction should be disqualifying, the 
Department would have to understand and apply the criminal laws and 
criminal procedures of any one of hundreds of foreign countries, as 
well as the cases decided under those laws. In SIFMA's view, the 
reasons cited by the Supreme Court in Small as weighing against asking 
prosecutors or judges to ``refine'' these ``definitional distinctions'' 
on the facts of that case equally weigh against the Department's 
finding that an exemption referencing foreign convictions is 
administratively feasible within the meaning of ERISA section 
408(a)(1). This is especially true, according to SIFMA, where the 
likelihood of ``getting it wrong'' is high, in light of the 
complexities and vagaries of foreign law.'' The Department's response 
to UBS's comments above, particularly UBS's comments on whether the 
exemption is administratively feasible, effectively address these 
points.
---------------------------------------------------------------------------

    \11\ See Small v. United States, 544 U.S. 385, 388-89 (2005).
---------------------------------------------------------------------------

    In light of the 2019 French Judgment Against UBS/UBS France, the 
Department believes it is important to make clear when the UBS QPAMs 
would not be permitted to continue to rely on this exemption if a 
member of the UBS corporate family is convicted of another serious 
foreign crime. In that circumstance, the Department would have still 
greater cause for concern about whether the UBS QPAMs and those in a 
position to influence their policies, maintain high standards of 
integrity and about the appropriateness of relief from the prohibited 
transaction provisions, which were enacted to protect plans, 
participants, and IRA owners from potentially abusive transactions. In 
that circumstance, the Department has concluded that it would be 
appropriate for the UBS QPAMs to seek a new exemption based upon a full 
consideration of the record and the misconduct at issue, rather than to 
rely upon an exemption that predates the new misconduct and the 
Department's consideration of that misconduct. The Applicants have also 
commented on the condition in section I(l) and the comment has been 
addressed above.
Comments From the Public
    The Department received two comments from the public. One commenter 
stated that he thought the exemption was a ``good rule.'' A second 
commenter noted that he agreed with the Department that performance of 
the exemption audit on less than an annual basis will weaken an 
important plan protection. This commenter also stated that he agreed 
that an annual review by an independent auditor of a QPAM's written 
policies and procedures and a representative sample of plan 
transactions is necessary to address the lack of QPAM independence. 
Lastly, this commenter noted that he agreed with the Department's 
assessment of costs associated with the exemption audit and expressed 
approval for the ``proposed amendments.''

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act or section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(B) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) In accordance with section 408(a) of ERISA and section 
4975(c)(2) of the Code, the Department makes the following 
determinations: The exemption is administratively feasible, the 
exemption is in the interests of affected plans and of their 
participants and beneficiaries, and the exemption is protective of the 
rights of participants and beneficiaries of such plans;
    (3) The exemption is supplemental to, and not in derogation of, any 
other provisions of ERISA, including statutory or administrative 
exemptions and transitional rules. Furthermore, the fact that a 
transaction is subject to an administrative or statutory exemption is 
not dispositive of whether the

[[Page 6169]]

transaction is in fact a prohibited transaction; and
    (4) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describe all material terms of the transaction 
which is the subject of the exemption.
    Accordingly, the following exemption is granted under the authority 
of section 408(a) of ERISA and section 4975(c)(2) of the Code and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011):

Exemption

Section I. Covered Transactions

    Certain entities with specified relationships to UBS (hereinafter, 
the UBS QPAMs, as defined in Sections II(e)) will not be precluded from 
relying on the exemptive relief provided by Prohibited Transaction 
Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\12\ 
notwithstanding the 2013 Conviction of UBS Securities Japan Co., Ltd., 
the 2018 Conviction of UBS (collectively the Convictions, as defined in 
Section II(a)), and the 2019 French Judgment Against UBS/UBS France (as 
defined in Section II(b)) during the Exemption Period, provided that 
the following conditions are satisfied: \13\
---------------------------------------------------------------------------

    \12\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430, 
(October 10, 1985), as amended at 70 FR 49305(August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as 
``PTE 84-14'' or the ``QPAM Exemption.''
    \13\ Section I(g) of PTE 84-14 generally provides that 
``[n]either the QPAM nor any affiliate thereof . . . nor any owner . 
. . of a 5 percent or more interest in the QPAM is a person who 
within the 10 years immediately preceding the transaction has been 
either convicted or released from imprisonment, whichever is later, 
as a result of'' certain criminal activity therein described.
---------------------------------------------------------------------------

    (a) The UBS QPAMS (including their officers, directors, agents 
other than UBS, UBS Securities, Japan and UBS France, and the employees 
of such UBS QPAMs, did not have reason to know of, or participate in: 
(1) The FX Misconduct; (2) the criminal conduct of UBS Securities Japan 
and UBS that is the subject of the Convictions; or (3) the criminal 
conduct of UBS and UBS France that is the subject of the 2019 French 
Judgment Against UBS/UBS France. Further, any other party engaged on 
behalf of such UBS QPAMs who had responsibility for, or exercised 
authority in connection with the management of plan assets did not know 
of, did not have reason to know of, or participate in the criminal 
conduct of UBS and UBS France that is the subject of the 2019 French 
Judgment Against UBS/UBS France. For purposes of this exemption, 
``participate in'' refers not only to active participation in the FX 
Misconduct, the misconduct underlying the Convictions, and the 
misconduct underlying the 2019 French Judgment Against UBS/UBS France, 
but also to knowing approval of that misconduct, or knowledge of such 
misconduct without taking active steps to prohibit such conduct, such 
as reporting the conduct to supervisors, including the Board of 
Directors;
    (b) The UBS QPAMs (including their officers, directors, agents 
other than UBS, UBS Securities Japan, and UBS France, and employees of 
such UBS QPAMs) did not receive direct compensation, or knowingly 
receive indirect compensation, in connection with the (1) the FX 
Misconduct; (2) the criminal conduct of UBS Securities Japan and UBS 
that is the subject of the Convictions; or (3) the criminal conduct of 
UBS and UBS France that is the subject of the 2019 French Judgment 
Against UBS/UBS France. Further, any other party engaged on behalf of 
such UBS QPAMs who had responsibility for, or exercised authority in 
connection with the management of plan assets did not receive direct 
compensation, or knowingly receive indirect compensation, in connection 
with the criminal conduct of UBS and UBS France that is the subject of 
the 2019 French Judgment Against UBS/UBS France;
    (c) The UBS QPAMs will not employ or knowingly engage any of the 
individuals who participated in: (1) The FX Misconduct; (2) the 
criminal conduct of UBS Securities Japan and UBS that is the subject of 
the Convictions; or (3) the criminal conduct of UBS and UBS France that 
is the subject of the 2019 French Judgment Against UBS/UBS France;
    (d) At all times during the Exemption Period, no UBS QPAM will use 
its authority or influence to direct an ``investment fund'' (as defined 
in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and 
managed by such UBS QPAM with respect to one or more Covered Plans (as 
defined in Section II(c)) to enter into any transaction with UBS, UBS 
Securities Japan, or UBS France or to engage UBS, UBS Securities Japan, 
or UBS France to provide any service to such investment fund, for a 
direct or indirect fee borne by such investment fund, regardless of 
whether such transaction or service may otherwise be within the scope 
of relief provided by an administrative or statutory exemption;
    (e) Any failure of the UBS QPAMs to satisfy Section I(g) of PTE 84-
14 arose solely from the Convictions and the 2019 French Judgment 
Against UBS/UBS France;
    (f) A UBS QPAM did not exercise authority over the assets of any 
plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or 
section 4975 of the Code (an IRA) in a manner that it knew or should 
have known would: Further the FX Misconduct, the criminal conduct that 
is the subject of the Convictions, or the criminal conduct of UBS and 
UBS France that is the subject of the 2019 French Judgment Against UBS/
UBS France; or cause the UBS QPAM or its affiliates to directly or 
indirectly profit from the FX Misconduct, the criminal conduct that is 
the subject of the Convictions, or the criminal conduct of UBS and UBS 
France that is the subject of the 2019 French Judgment Against UBS/UBS 
France;
    (g) Other than with respect to employee benefit plans maintained or 
sponsored for its own employees or the employees of an affiliate, UBS, 
UBS Securities Japan, and UBS France will not act as fiduciaries within 
the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section 
4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan 
and IRA assets; provided, however, that UBS, UBS Securities Japan, and 
UBS France will not be treated as violating the conditions of this 
exemption solely because it acted as an investment advice fiduciary 
within the meaning of section 3(21)(A)(ii) of ERISA or section 
4975(e)(3)(B) of the Code;
    (h)(1) Each UBS QPAM must continue to maintain, adjust (to the 
extent necessary), implement, and follow written policies and 
procedures (the Policies). The Policies must require, and must be 
reasonably designed to ensure that:
    (i) The asset management decisions of the UBS QPAM are conducted 
independently of UBS's corporate management and business activities, 
including the corporate management and business activities of the 
Investment Bank division, UBS Securities Japan, and UBS France; this 
condition does not preclude a UBS QPAM from receiving publicly 
available research and other widely available information from a UBS 
affiliate;
    (ii) The UBS QPAM fully complies with ERISA's fiduciary duties, and 
with ERISA and the Code's prohibited transaction provisions, in each 
case as applicable with respect to each Covered Plan, and does not 
knowingly participate in any violation of these duties and provisions 
with respect to Covered Plans;

[[Page 6170]]

    (iii) The UBS QPAM does not knowingly participate in any other 
person's violation of ERISA or the Code with respect to Covered Plans;
    (iv) Any filings or statements made by the UBS QPAM to regulators, 
including, but not limited to, the Department, the Department of the 
Treasury, the Department of Justice, and the Pension Benefit Guaranty 
Corporation, on behalf of or in relation to Covered Plans, are 
materially accurate and complete, to the best of such QPAM's knowledge 
at that time;
    (v) To the best of the UBS QPAM's knowledge at that time, the UBS 
QPAM does not make material misrepresentations or omit material 
information in its communications with such regulators with respect to 
Covered Plans, or make material misrepresentations or omit material 
information in its communications with Covered Plans;
    (vi) The UBS QPAM complies with the terms of this exemption;
    (2) Any violation of, or failure to comply with an item in 
subparagraphs (h)(1)(ii) through (h)(1)(vi), is corrected as soon as 
reasonably possible upon discovery, or as soon after the QPAM 
reasonably should have known of the noncompliance (whichever is 
earlier), and any such violation or compliance failure not so corrected 
is reported, upon the discovery of such failure to so correct, in 
writing. Such report shall be made to the head of compliance and the 
General Counsel (or their functional equivalent) of the relevant UBS 
QPAM that engaged in the violation or failure, and the independent 
auditor responsible for reviewing compliance with the Policies. A UBS 
QPAM will not be treated as having failed to develop, implement, 
maintain, or follow the Policies, provided that it corrects any 
instance of noncompliance as soon as reasonably possible upon 
discovery, or as soon as reasonably possible after the QPAM reasonably 
should have known of the noncompliance (whichever is earlier), and 
provided that it adheres to the reporting requirements set forth in 
this subparagraph (vii);
    (3) Each UBS QPAM will maintain, adjust (to the extent necessary) 
and implement a program of training during the Exemption Period, to be 
conducted during the Exemption Period, for all relevant UBS QPAM asset/
portfolio management, trading, legal, compliance, and internal audit 
personnel. The Training must:
    (i) At a minimum, cover the Policies, ERISA and Code compliance 
(including applicable fiduciary duties and the prohibited transaction 
provisions), ethical conduct, the consequences for not complying with 
the conditions of this exemption (including any loss of exemptive 
relief provided herein), and prompt reporting of wrongdoing; and
    (ii) Be conducted by a professional who has been prudently selected 
and who has appropriate technical training and proficiency with ERISA 
and the Code;
    (i)(1) Each UBS QPAM submits to an audit conducted by an 
independent auditor, who has been prudently selected and who has 
appropriate technical training and proficiency with ERISA and the Code, 
to evaluate the adequacy of, and each UBS QPAM's compliance with, the 
Policies and Training described herein. The audit requirement must be 
incorporated in the Policies. The audit must cover the Exemption Period 
and must be completed no later than six (6) months after the end of the 
exemption period. For time periods ending prior to the judgment against 
UBS or UBS France by the French First Instance Court and covered by the 
audit required pursuant to PTE 2017-07,\14\ the audit requirements in 
Section I(i) of PTE 2017-07 will remain in effect. The audit under PTE 
2017-07 covering the time period from January 10, 2018 until the date 
of the judgment against UBS or UBS France by the French First Instance 
Court must be completed within six (6) months of the date of any such 
judgment, and the corresponding certified Audit Report must be 
submitted to the Department no later than 45 days following the 
completion of such audit; \15\
---------------------------------------------------------------------------

    \14\ 82 FR 61903 (December 29, 2017). PTE 2017-07 is an 
exemption that permits UBS QPAMs to rely on the exemptive relief 
provided by PTE 84-14, notwithstanding the 2013 and 2018 
Convictions.
    \15\ Pursuant to PTE 2017-07, the initial audit period begins on 
January 10, 2018 and ends on March 9, 2019, and the corresponding 
Audit Report must be completed by September 9, 2019 and the Audit 
Report submitted to the Department within 45 days after completion. 
Accordingly, the last audit performed pursuant to PTE 2017-07 will 
cover the period beginning January 10, 2018 and ending on the date 
of judgment against UBS or UBS France by the French First Instance 
Court. The corresponding Audit Report must be completed within six 
months of the judgment and submitted to the Department within 45 
days of completion.
---------------------------------------------------------------------------

    (2) Within the scope of the audit and to the extent necessary for 
the auditor, in its sole opinion, to complete its audit and comply with 
the conditions for relief described herein, and only to the extent such 
disclosure is not prevented by state or federal statute, or involves 
communications subject to attorney client privilege, each UBS QPAM and, 
if applicable, UBS, will grant the auditor unconditional access to its 
business, including, but not limited to: Its computer systems; business 
records; transactional data; workplace locations; training materials; 
and personnel. Such access is limited to information relevant to the 
auditor's objectives as specified by the terms of this exemption;
    (3) The auditor's engagement must specifically require the auditor 
to determine whether each UBS QPAM has developed, implemented, 
maintained, and followed the Policies in accordance with the conditions 
of this exemption, and has developed and implemented the Training, as 
required herein;
    (4) The auditor's engagement must specifically require the auditor 
to test each UBS QPAM's operational compliance with the Policies and 
Training. In this regard, the auditor must test, for each UBS QPAM, a 
sample of such UBS QPAM's transactions involving Covered Plans, 
sufficient in size and nature to afford the auditor a reasonable basis 
to determine such UBS QPAM's operational compliance with the Policies 
and Training;
    (5) For the audit, on or before the end of the relevant period 
described in Section I(i)(1) for completing the audit, the auditor must 
issue a written report (the Audit Report) to UBS and the UBS QPAM to 
which the audit applies that describes the procedures performed by the 
auditor in connection with its examination. The auditor, at its 
discretion, may issue a single consolidated Audit Report that covers 
all the UBS QPAMs. The Audit Report must include the auditor's specific 
determinations regarding:
    (i) The adequacy of each UBS QPAM's Policies and Training; each UBS 
QPAM's compliance with the Policies and Training; the need, if any, to 
strengthen such Policies and Training; and any instance of the 
respective UBS QPAM's noncompliance with the written Policies and 
Training described in Section I(h) above. The UBS QPAM must promptly 
address any noncompliance. The UBS QPAM must promptly address or 
prepare a written plan of action to address any determination as to the 
adequacy of the Policies and Training and the auditor's recommendations 
(if any) with respect to strengthening the Policies and Training of the 
respective UBS QPAM. Any action taken or the plan of action to be taken 
by the respective UBS QPAM must be included in an addendum to the Audit 
Report (such addendum must be completed prior to the certification 
described in Section I(i)(7) below). In the event such a plan of action 
to address the auditor's recommendation regarding the adequacy of the 
Policies and Training is not completed by the time of

[[Page 6171]]

submission of the Audit Report, the following period's Audit Report 
must state whether the plan was satisfactorily completed. Any 
determination by the auditor that a UBS QPAM has implemented, 
maintained, and followed sufficient Policies and Training must not be 
based solely or in substantial part on an absence of evidence 
indicating noncompliance. In this last regard, any finding that a UBS 
QPAM has complied with the requirements under this subparagraph must be 
based on evidence that the particular UBS QPAM has actually 
implemented, maintained, and followed the Policies and Training 
required by this exemption. Furthermore, the auditor must not solely 
rely on the Exemption Report created by the compliance officer (the 
Compliance Officer), as described in Section I(m) below, as the basis 
for the auditor's conclusions in lieu of independent determinations and 
testing performed by the auditor as required by Section I(i)(3) and (4) 
above; and
    (ii) The adequacy of the Exemption Review described in Section 
I(m);
    (6) The auditor must notify the respective UBS QPAM of any instance 
of noncompliance identified by the auditor within five (5) business 
days after such noncompliance is identified by the auditor, regardless 
of whether the audit has been completed as of that date;
    (7) With respect to the Audit Report, the General Counsel, or one 
of the three most senior executive officers of the UBS QPAM to which 
the Audit Report applies, must certify in writing, under penalty of 
perjury, that the officer has reviewed the Audit Report and this 
exemption; that, to the best of such officer's knowledge at the time, 
such UBS QPAM has addressed, corrected, remedied any noncompliance and 
inadequacy or has an appropriate written plan to address any inadequacy 
regarding the Policies and Training identified in the Audit Report. 
Such certification must also include the signatory's determination, 
that, to the best of such officer's knowledge at the time, the Policies 
and Training in effect at the time of signing are adequate to ensure 
compliance with the conditions of this exemption and with the 
applicable provisions of ERISA and the Code;
    (8) The Risk Committee of UBS's Board of Directors is provided a 
copy of the Audit Report; and a senior executive officer of UBS's 
Compliance and Operational Risk Control function must review the Audit 
Report for each UBS QPAM and must certify in writing, under penalty of 
perjury, that such officer has reviewed the Audit Report;
    (9) Each UBS QPAM provides its certified Audit Report, by regular 
mail to: Office of Exemption Determinations (OED), 200 Constitution 
Avenue NW, Suite 400, Washington, DC 20210; or by private carrier to: 
122 C Street NW, Suite 400, Washington, DC 20001-2109. This delivery 
must take place no later than 45 days following completion of the Audit 
Report. The Audit Report will be made part of the public record 
regarding this exemption. Furthermore, each UBS QPAM must make its 
Audit Report unconditionally available, electronically or otherwise, 
for examination upon request by any duly authorized employee or 
representative of the Department, other relevant regulators, and any 
fiduciary of a Covered Plan;
    (10) Any engagement agreement with an auditor to perform the audit 
required under the terms of this exemption that is entered subsequent 
to the date of the judgment against UBS or UBS France by the French 
First Instance Court must be submitted to OED no later than two (2) 
months after the execution of such agreement;
    (11) The auditor must provide the Department, upon request, for 
inspection and review, access to all the workpapers created and 
utilized in connection with the audit, provided such access and 
inspection is otherwise permitted by law; and
    (12) UBS must notify the Department of a change in the independent 
auditor no later than two (2) months after the engagement of a 
substitute or subsequent auditor and must provide an explanation for 
the substitution or change including a description of any material 
disputes between the terminated auditor and UBS;
    (j) As of the date of the judgment against UBS or UBS France by the 
French First Instance and throughout the Exemption Period, with respect 
to any arrangement, agreement, or contract between a UBS QPAM and a 
Covered Plan, the UBS QPAM agrees and warrants to Covered Plans:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such Covered Plan; to refrain from engaging in prohibited 
transactions that are not otherwise exempt (and to promptly correct any 
inadvertent prohibited transactions); and to comply with the standards 
of prudence and loyalty set forth in section 404 of ERISA with respect 
to each such ERISA-covered plan and IRA to the extent that section 404 
is applicable;
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from: A UBS QPAM's violation of ERISA's 
fiduciary duties, as applicable, and of the prohibited transaction 
provisions of ERISA and the Code, as applicable; a breach of contract 
by the QPAM; or any claim arising out of the failure of such UBS QPAM 
to qualify for the exemptive relief provided by PTE 84-14 as a result 
of a violation of Section I(g) of PTE 84-14 other than the Convictions 
and the 2019 French Judgment Against UBS/UBS France. This condition 
applies only to actual losses caused by the UBS QPAM's violations.
    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of the UBS QPAM for violating ERISA or 
the Code or engaging in prohibited transactions;
    (4) Not to restrict the ability of such Covered Plan to terminate 
or withdraw from its arrangement with the UBS QPAM with respect to any 
investment in a separately managed account or pooled fund subject to 
ERISA and managed by such QPAM, with the exception of reasonable 
restrictions, appropriately disclosed in advance, that are specifically 
designed to ensure equitable treatment of all investors in a pooled 
fund in the event such withdrawal or termination may have adverse 
consequences for all other investors. In connection with any such 
arrangements involving investments in pooled funds subject to ERISA 
entered into after the effective date of PTE 2017-07, the adverse 
consequences must relate to a lack of liquidity of the underlying 
assets, valuation issues, or regulatory reasons that prevent the fund 
from promptly redeeming an ERISA-covered plan's or IRA's investment, 
and such restrictions must be applicable to all such investors and be 
effective no longer than reasonably necessary to avoid the adverse 
consequences;
    (5) Not to impose any fees, penalties, or charges for such 
termination or withdrawal with the exception of reasonable fees, 
appropriately disclosed in advance, that are specifically designed to 
prevent generally recognized abusive investment practices or 
specifically designed to ensure equitable treatment of all investors in 
a pooled fund in the event such withdrawal or termination may have 
adverse consequences for all other investors, provided that such fees 
are applied consistently and in like manner to all such investors; and
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the UBS QPAM for a violation of such agreement's 
terms. To the extent consistent with Section 410 of ERISA, however, 
this provision does not prohibit disclaimers for liability caused by an 
error,

[[Page 6172]]

misrepresentation, or misconduct of a plan fiduciary or other party 
hired by the plan fiduciary who is independent of UBS and its 
affiliates, or damages arising from acts outside the control of the UBS 
QPAM;
    (7) Within six months of the date of the judgment against UBS or 
UBS France by the French First Instance Court, each UBS QPAM must 
provide a notice of its obligations under this Section I(j) to each 
Covered Plan. For prospective Covered Plans that enter into a written 
asset or investment management agreement with a UBS QPAM on or after 
the date of the judgment, the UBS QPAM will agree to its obligations 
under this Section I(j) in an updated investment management agreement 
between the UBS QPAM and such clients or other written contractual 
agreement. This condition will be deemed met for each Covered Plan that 
received a notice pursuant to PTE 2016-17 and/or PTE 2017-07 that meets 
the terms of this condition. Notwithstanding the above, a UBS QPAM will 
not violate the condition solely because a Plan or IRA refuses to sign 
an updated investment management agreement.
    (k) Within 60 days of the judgment against UBS or UBS France by the 
French First Instance Court, each UBS QPAM will provide a notice of the 
exemption, along with a separate summary describing the facts that led 
to the Convictions and the 2019 French Judgment Against UBS/UBS France 
(the Summary), which have been submitted to the Department, and a 
prominently displayed statement (the Statement) (collectively, Initial 
Notice) that the Convictions and, in the Department's view, the 2019 
French Judgment Against UBS/UBS France, each separately result in a 
failure to meet a condition in PTE 84-14 and PTE 2017-07, to each 
sponsor and beneficial owner of a Covered Plan, or the sponsor of an 
investment fund in any case where a UBS QPAM acts as a sub-advisor to 
the investment fund in which such ERISA-covered plan and IRA invests. 
Effective as of the date that is 60 days after the 2019 French Judgment 
Against UBS/UBS France Date, all Covered Plan clients that enter into a 
written asset or investment management agreement with a UBS QPAM after 
that date must receive a copy of the exemption, the Summary, and the 
Statement prior to, or contemporaneously with, the Covered Plan's 
receipt of a written asset management agreement from the UBS QPAM. 
Disclosures may be delivered electronically;
    (l) The UBS QPAMs must comply with each condition of PTE 84-14, as 
amended, with the sole exception of the violations of Section I(g) of 
PTE 84-14 that are attributable to the Convictions and the 2019 French 
Judgment Against UBS/UBS France. If, during the Exemption Period, an 
entity within the UBS corporate structure is convicted of a crime 
described in Section I(g) of PTE 84-14, (other than the 2013 
Conviction, 2018 Conviction, and the 2019 French Judgment Against UBS/
UBS France), including a conviction in a foreign jurisdiction for a 
crime described in Section I(g) of PTE 84-14, relief in this exemption 
would terminate immediately;
    (m)(1) UBS continues to designate a senior compliance officer (the 
Compliance Officer) who will be responsible for compliance with the 
Policies and Training requirements described herein. The Compliance 
Officer must conduct a review for the Exemption Period (the Exemption 
Review),\16\ to determine the adequacy and effectiveness of the 
implementation of the Policies and Training. With respect to the 
Compliance Officer, the following conditions must be met:
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    \16\ Pursuant to PTE 2017-07 the Compliance Officer must conduct 
an exemption review (annual review) for each period corresponding to 
the audit periods set forth in Section I(i)(1) of PTE 2017-07 and 
the Compliance officer's written report submitted to the Department 
within three (3) months of the end of the period to which it 
relates. Accordingly, the final exemption review pursuant to PTE 
2017-07 must cover the period January 10, 2018 through the date of 
the judgment against UBS or UBS France by the French First Instance 
Court, and the corresponding Compliance Officer's written report 
must be submitted within three (3) months of the judgment.
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    (i) The Compliance Officer must be a professional who has extensive 
experience with, and knowledge of, the regulation of financial services 
and products, including under ERISA and the Code; and
    (ii) The Compliance Officer must have a reporting line within UBS's 
Compliance and Operational Risk Control (C&ORC) function to the Head of 
Compliance and Operational Risk Control, Asset Management. The C&ORC 
function is organizationally independent of UBS's business divisions--
including Asset Management, the Investment Bank, and Global Wealth 
Management--and is led by the head of Group Compliance, Regulatory and 
Governance, or another appropriate member of the Group Executive Board;
    (2) With respect to the Exemption Review, the following conditions 
must be met:
    (i) The Exemption Review includes a review of the UBS QPAMs' 
compliance with and effectiveness of the Policies and Training and of 
the following: Any compliance matter related to the Policies or 
Training that was identified by, or reported to, the Compliance Officer 
or others within the C&ORC function during the previous year; the most 
recent Audit Report issued pursuant to this exemption or PTE 2017-07; 
any material change in the relevant business activities of the UBS 
QPAMs; and any change to ERISA, the Code, or regulations related to 
fiduciary duties and the prohibited transaction provisions that may be 
applicable to the activities of the UBS QPAMs;
    (ii) The Compliance Officer prepares a written report for the 
Exemption Review (an Exemption Report) that (A) summarizes his or her 
material activities during the Exemption Period; (B) sets forth any 
instance of noncompliance discovered during the Exemption Period, and 
any related corrective action; (C) details any change to the Policies 
or Training to guard against any similar instance of noncompliance 
occurring again; and (D) makes recommendations, as necessary, for 
additional training, procedures, monitoring, or additional and/or 
changed processes or systems, and management's actions on such 
recommendations;
    (iii) In the Exemption Report, the Compliance Officer must certify 
in writing that to the best of his or her knowledge at the time: (A) 
The report is accurate; (B) the Policies and Training are working in a 
manner which is reasonably designed to ensure that the Policies and 
Training requirements described herein are met; (C) any known instance 
of noncompliance during the Exemption Period and any related correction 
taken to date have been identified in the Exemption Report; and (D) the 
UBS QPAMs have complied with the Policies and Training, and/or 
corrected (or are correcting) any known instances of noncompliance in 
accordance with Section I(h) above;
    (iv) The Exemption Report must be provided to appropriate corporate 
officers of UBS and each UBS QPAM to which such report relates, and to 
the head of compliance and the General Counsel (or their functional 
equivalent) of the relevant UBS QPAM; and the report must be made 
unconditionally available to the independent auditor described in 
Section I(i) above;
    (v) The Exemption Review, including the Compliance Officer's 
written Exemption Report, must be completed within three (3) months 
following the end of the period to which it relates;
    (n) UBS imposes its internal procedures, controls, and protocols on 
UBS Securities Japan to: (1) Reduce the

[[Page 6173]]

likelihood of any recurrence of conduct that that is the subject of the 
2013 Conviction, and (2) comply in all material respects with the 
Business Improvement Order, dated December 16, 2011, issued by the 
Japanese Financial Services Authority;
    (o) UBS complies in all material respects with the audit and 
monitoring procedures imposed on UBS by the U.S. Commodity Futures 
Trading Commission Order, dated December 19, 2012;
    (p) Each UBS QPAM will maintain records necessary to demonstrate 
that the conditions of this exemption have been met, for six (6) years 
following the date of any transaction for which such UBS QPAM relies 
upon the relief in the exemption;
    (q) During the Exemption Period, UBS must: (1) Immediately disclose 
to the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) with the U.S. Department of Justice, 
entered into by UBS or any of its affiliates (as defined in Section 
VI(d) of PTE 84-14) in connection with conduct described in Section 
I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides 
the Department any information requested by the Department, as 
permitted by law, regarding the agreement and/or conduct and 
allegations that led to the agreement;
    (r) Within six months from the date of the judgment against UBS or 
UBS France by the French First Instance Court, each UBS QPAM, in its 
agreements with, or in other written disclosures provided to Covered 
Plans, will clearly and prominently inform Covered Plan clients of 
their right to obtain a copy of the Policies or a description (Summary 
Policies) which accurately summarizes key components of the UBS QPAM's 
written Policies developed in connection with this exemption. If the 
Policies are thereafter changed, each Covered Plan client must receive 
a new disclosure within six (6) months following the end of the 
calendar year during which the Policies were changed.\17\ With respect 
to this requirement, the description may be continuously maintained on 
a website, provided that such website link to the Policies or Summary 
Policies is clearly and prominently disclosed to each Covered Plan; and
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    \17\ In the event the Applicant meets this disclosure 
requirement through Summary Policies, changes to the Policies shall 
not result in the requirement for a new disclosure unless, as a 
result of changes to the Policies, the Summary Policies are no 
longer accurate.
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    (s) A UBS QPAM will not fail to meet the terms of this exemption, 
solely because a different UBS QPAM fails to satisfy a condition for 
relief described in Sections I(c), (d), (h), (i), (j), (k), (l), (p), 
or (r); or if the independent auditor described in Section I(i) fails a 
provision of the exemption other than the requirement described in 
Section I(i)(11), provided that such failure did not result from any 
actions or inactions of UBS or its affiliates.

Section II. Definitions

    (a) The term ``Convictions'' means the 2013 Conviction and the 2017 
Conviction. The term ``2013 Conviction'' means the judgment of 
conviction against UBS Securities Japan Co. Ltd. in case number 3:12-
cr-00268-RNC in the U.S. District Court for the District of Connecticut 
for one count of wire fraud in violation of Title 18, United States 
Code, sections 1343 and 2 in connection with submission of YEN London 
Interbank Offered Rates and other benchmark interest rates. The term 
``2018 Conviction'' means the judgment of conviction against UBS in 
case number 3:15-cr-00076-RNC in the U.S. District Court for the 
District of Connecticut for one count of wire fraud in violation of 
Title 18, United States Code, Sections 1343 and 2 in connection with 
UBS's submission of Yen London Interbank Offered Rates and other 
benchmark interest rates between 2001 and 2010. For all purposes under 
this exemption, ``conduct'' of any person or entity that is the 
``subject of the Convictions'' encompasses any conduct of UBS and/or 
their personnel, that is described in (i) Exhibit 3 to the Plea 
Agreement entered into between UBS and the Department of Justice 
Criminal Division, on May 20, 2015, in connection with case number 
3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement 
entered into between UBS Securities Japan and the Department of Justice 
Criminal Division, on December 19, 2012, in connection with case number 
3:12-cr-00268-RNC;
    (b) The term ``2019 French Judgment Against UBS/UBS France'' 
includes any adverse judgment against UBS or UBS France regarding case 
Number 1105592033. For all purposes under this exemption, ``conduct'' 
of any person or entity that is the ``criminal conduct that is the 
subject of the 2019 French Judgment Against UBS/UBS France'', includes 
any conduct of UBS, its affiliates, or UBS France and/or their 
personnel that is described in any such judgment;
    (c) The term ``Covered Plan'' means a plan subject to Part IV of 
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to 
section 4975 of the Code (an ``IRA''), in each case, with respect to 
which a UBS QPAM relies on PTE 84-14, or with respect to which a UBS 
QPAM (or any UBS affiliate) has expressly represented that the manager 
qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14). 
A Covered Plan does not include an ERISA-covered plan or IRA to the 
extent the UBS QPAM has expressly disclaimed reliance on QPAM status or 
PTE 84-14 in entering into a contract, arrangement, or agreement with 
the ERISA-covered plan or IRA.
    (d) The term ``FX Misconduct'' means the conduct engaged in by UBS 
personnel described in Exhibit 1 of the Plea Agreement (Factual Basis 
for Breach) entered into between UBS and the Department of Justice 
Criminal Division, on May 20, 2015 in connection with Case Number 3:15-
cr-00076-RNC filed in the U.S. District Court for the District of 
Connecticut.
    (e) The term ``UBS QPAM'' means UBS Asset Management (Americas) 
Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions LLC, UBS 
O'Connor LLC, and any future entity within the Asset Management or the 
Global Wealth Management Americas U.S. divisions of UBS that qualifies 
as a ``qualified professional asset manager'' (as defined in Section 
VI(a) of PTE 84-14) \18\ and that relies on the relief provided by PTE 
84-14, and with respect to which UBS is an ``affiliate'' (as defined in 
Part VI(d) of PTE 84-14). The term ``UBS QPAM'' excludes UBS securities 
Japan, the entity implicated in the criminal conduct that is the 
subject of the 2013 Conviction, UBS, the entity implicated in the 
criminal conduct that is the subject of the 2018 Conviction and 
implicated in the criminal conduct of UBS and UBS France that is the 
subject of the 2019 French Judgment Against UBS/UBS France, and UBS 
France, the entity implicated in the criminal conduct of UBS and UBS 
France that is the subject of the 2019 French Judgment Against UBS/UBS 
France.
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    \18\ In general terms, a QPAM is an independent fiduciary that 
is a bank, savings and loan association, insurance company, or 
investment adviser that meets certain equity or net worth 
requirements and other licensure requirements and that has 
acknowledged in a written management agreement that it is a 
fiduciary with respect to each plan that has retained the QPAM.
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    (f) The term ``UBS'' means UBS AG.
    (g) The term ``UBS France'' means ``UBS (France) S.A.,'' a wholly-
owned subsidiary of UBS incorporated under the laws of France.
    (h) The term ``UBS Securities Japan'' means UBS Securities Japan 
Co. Ltd, a wholly-owned subsidiary of UBS incorporated under the laws 
of Japan.

[[Page 6174]]

    (i) All references to ``the date of the judgment by the French 
First Instance Court'' refer to any judgment against UBS or UBS France 
in case number 1105592033;
    (j) The term ``Exemption Period'' means one year beginning on the 
date of the French First Instance judgment against UBS or UBS France 
regarding case Number 1105592033;
    (k) The term ``Plea Agreement'' means the Plea Agreement (including 
Exhibits 1 and 3 attached thereto) entered into between UBS and the 
Department of Justice Criminal Division, on May 20, 2015 in connection 
with Case Number 3:15-cr-00076-RNC filed in the US District Court for 
the District of Connecticut.
    Effective Date: This exemption will be in effect for one year from 
the date of the judgment in the French First Instance Court against UBS 
and/or UBS France in case number 1105592033.

    Signed at Washington, DC, this 21st day of February, 2019.
Lyssa Hall,
Director, Office of Exemption Determinations Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2019-03339 Filed 2-22-19; 11:15 am]
 BILLING CODE 4510-29-P